Islamic militants in the Philippines have threatened to behead an American hostage unless the US agrees to release a jailed Islamic militant.

"We do not joke, when we say we will behead someone, we will behead him," said a spokesman for the Abu Sayyaf rebels holding Jeffrey Schilling.

Mr Schilling, 24, is the first American caught up in the recent wave of kidnappings by the separatist guerrillas.

We do not make deals with terrorists, we will not pay ransom, we will not change policies, we will not release prisoners

Phillip Reeker, US State Department

Reports from the Philippines say he went to meet the leader of an Abu Sayyaf faction on the island of Jolo, where he was then captured.

The rebels have accused Mr Schilling of being a CIA spy, and say they will kill him unless the United States releases Ramzi Yousef, the man jailed for carrying out the 1993 bombing of the World Trade Centre in New York.

Rebel spokesman Abu Sabaya said the rebels believe Mr Schilling is a CIA agent because he had introduced himself as a Muslim convert but knew little about Islam.

Release demands

The United States has demanded the immediate release of Mr Schilling and other hostages still being held by Abu Sayyaf.

A State Department spokesman said they should be released unconditionally and no ransom would be paid.

Still held captive are at least 3 French, 2 Finns, 1 German, 1 American and 16 Filipinos

Six foreign hostages it freed over the weekend have now started arriving in their home countries, after a ceremony in Libya, which negotiated their release.

Abu Sayyaf handed over the hostages after allegedly receiving a reported $6m ransom. This has been denied by Libya.

However the US has steadfastly refused to pay ransoms, and says it will not compromise its no deals position.

"As far as paying ransom is concerned, US policy is very clear," said State Department spokesman Philip Reeker.

"We do not make deals with terrorists, we will not pay ransom, we will not change policies, we will not release prisoners or make any other concessions that reward hostage taking," he added.

More problems

His words were echoed by the Phillipines government, which is concerned that ransom payments will only encourage further hostage taking.

"We cannot go on like this, we are just setting ourselves up for more problems in the future," said presidential executive secretary Ronaldo Zamora.

Abu Sayyaf, which is fighting for an Islamic state in a predominantly Catholic Philippines, kidnapped 21 tourists and staff from the Malaysian resort of Sipadan on 23 April.

The gunmen have previously released one German, a Filipina and nine Malaysians from the Sipadan group as well as a number of hostages from other kidnappings they had been holding on the island of Jolo.